Authors: Adam Ashcraft, Allan Malz, and Zoltan Pozsar
The securitization markets for consumer and business asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), which supply a substantial share of credit to consumers and small businesses, came to a near-complete halt in the fall of 2008, as investors responded to a drastic decline in funding liquidity by curtailing their participation in these markets. In response, the Federal Reserve introduced the TALF program, which extended term loans collateralized by securities to buyers of certain high-quality ABS and CMBS, as part of a broad array of emergency liquidity measures intended to avert lasting harm to the economy. This article describes the TALF program and operations in detail, explains how the terms and conditions of the TALF were intended to restore market liquidity while limiting the risk of loss to the public, and assesses the efficacy of the program. The authors find that, while it is hard to isolate the effect of the TALF, the facility is likely to have made a significant contribution to restoring liquidity in 2009 and 2010.